To Rent or Buy?

[RentorBuy?]

This is a rent vs. buy situation that I would like some input on if anyone is willing. This is my first post here.

We are planning on going to our local credit union where we having accounts this coming week to get professional suggestions but at the same time I feel like they will be biased. Banks, even credit unions sell mortgages etc. You all, do not.

A little info. My wife and I are both 25. Do not have kids and both work. Income per year averages around 65-75k. MAybe more depending on bonuses but those aren't guaranteed. We have no debt besides 24k in student loans which are $245/ month. Credit scores for both of us are 740+

We live in a nice area of Winterville,NC... lots of family's, young working professionals etc. The schools are good and crime is low within the surrounding area compared to the area north in Greenville. The town homes we are currently living in sell for $75k(Very cheap cost of living). HOA is $85 per month. We are currently renting here for $800/month or $9600/year which makes me sick paying this much(considering the area). We plan to live here for another two years before moving back to the Wake County or Raleigh,Youngsville/Wake Forest/Creedmoor area's in NC.

Financially we have been living off my income and putting my wife's income away each month since we moved here back in April. We plan to do this until we move two years from now. This equates to a savings of around $1500/ month or 18k per year. We currently max out our Roth Ira's and have 30k in savings.

My thought is that we could easily put 20% down to avoid PMI insurance, pay $550 a month towards the mortgage(boa, taxes, insurance principle and interest on 15 yr mortgage) and in two years we could walk away with 6000 more in equity plus saving an additional $250/ month over the $800 we pay now.

What are your thoughts on this? We see pro's and con's as follow.
Pro's
-$550 instead of $800 per month
-Equity in the home vs money we wouldn't see again with rent
-We could paint/change out fixtures in the house how we wanted
-Possibility of rental income if we did not sell upon leaving.
-The Elementary and Middle school's are highly rated for when it would be time to sell
-We could still save for a down payment on a house back in the Raleigh/Youngsville/WF area just like we are now

Con's
-Jobs change
-Job loss (This would still be affordable with either of us losing or jobs/obviously both would be tougher but $550/month isn't that much.)
-Potential repair cost to HVAC/Water heater/Fridge etc
-Hard to get mortgage for such a small amount (personal loan at SECU is 5%) if mortgage is not possible but this would obviously raise overall cost. If we went this route we would most likely pay more towards the principle each month.

[creditcardfree]

The cost of selling can be 7% of the sales prices in many areas, so this will eat into any equity you might accumulate.

There are pros and cons to be a landlord. It is much harder to do long distance. If you hire someone to manage that eats into any 'profit' as well. Consider if you really want to be a landlord.

Having owned three homes and getting ready to sell and move with the military, I think we are actually going to rent, to avoid hassle of selling and potential loss of equity by needing to hire a realtor.

I personally would just continue to rent if it is only two years. You actually mentioned that if you owned you would paint and do upgrades to your home which cost you money and eat into that savings you think you are getting when you buy.

[HappySaver]

We plan to live here for another two years before moving back to the Wake County or Raleigh,Youngsville/Wake Forest/Creedmoor area's in NC.

Keep renting and saving. A two year outlook is not nearly enough time to make buying worthwhile. Conventional wisdom recommends at least 5--10 years to make owning worthwhile. By the time you factor in sales commissions, work and maintenance on the house, uncertainty with market conditions, etc., you could be losing, not making money.

You are on the right track to buy when you move in two years. That is no time at all in homeowner's universe.

I would not go the bank on this one. They will only suggest that you buy as it's in their best interest.

[MonkeyMama]

You are very wise to get an unbiased opinion!

If you will likely move in a couple of years I wouldn't necessarily bother. That said, financially it sounds very feasible and if you would like to own a rental this would be a good step in that direction.

I would only make this decision if it makes sense as some sort of long-term financial plan - a plan that includes rentals. If you are just trying to justify the decision to save a few bucks in the short run then I would not bother. The short-term cost savings would probably not be worth all the risks. But if you want to own a rental in this area for the long run anyway, then why not?

One question to ask yourself is how would you feel if the value of the townhome dropped considerably and took a long time to recover. In my time as a homeowner it seems most people never consider this possibility. So just another important factor to think through. Other risks would be how financially sound the HOA is and if there is the potential for any big assessments. We owned a condo in a high-cost city for 2 years and saved a small fortune in doing so, but we were blessed with a financially sound HOA. In contrast, we have a relative in a low cost city who had a special assessment for like $50,000 to cover some cost. (I don't even remember what it was). He has only paid $75,000-ish for the condo in the first place. Even if he could have afforded the assessment, what are the odds than anyone else could have? That is a situation you would certainly want to avoid. (In his case, he walked away and let it go to foreclosure). I found having a good realtor on our side helped us to avoid some of those minefields. Someone in the know with the various HOAs and their issues. You can also learn a lot by reading HOA financials and board minutes.

[keelerjr12]

You've probably already seen this, but for everyone else:

Rent vs Buy Calculator

I was considering doing this at the next place where I live (only 1-2 years), but I'd have roommates that would essentially pay all costs of owning the home (mortgage payment, insurance, etc.) so I'd basically live there rent free. With your case that's not really possible so it doesn't may much sense unless you are possibly thinking of renting it out after you move.

[Peaples]

Honestly I think you can afford it and bank is offering a mortgage it will always be more beneficial to buy.

[elessar78]

Cost of ownership is not just the mortgage. Plan on 1.5x-2x of mortgage for home maintenance, repairs, or just improvements that you want.

Yes, everyone is quick to say "you're renting for $800 when you can be owning for $550?? You're crazy/dumb/whatever."

There's more to consider than just the monthly payment. As someone already said, 2 years is too short. The hidden costs of buying and selling will not make it worth it, in most cases.

[snafu]

Rent vs Buy...No one has yet mentioned the costs involved in buying. There are a long list of 'closing' costs, legal fees and expenses that jump up unexpectedly. Worse yet, mortgages are not traditional loans like car loans. Mortgage are front loaded, your 1st half is nearly all interest with only a small percentage of principal. As mentioned, it's mostly profit for the bank or lending institution. It can work if you're willing to be a landlord and the shenanigans that entails.

Ask those who landed underwater in homes 2008 - 2012 about difficulties selling or getting out from under the mess for a different point of view.